Sales, growth, value, profit: The key concepts for 2018
Professional pricing, omnichannel sales, customization, and behind it all, digitization: Georg Tacke, CEO of the global strategy and marketing consultancy Simon-Kucher & Partners, is focusing on growth and top line for the year ahead. He has analyzed five trends and developments that top managers should have on the radar for 2018.
- A new focus for digitization: From technology to customer value
Digitization will remain the topic in 2018, but the focus is changing. Until now, technical feasibility was the primary concern, i.e. IT and technology. This year will revolve much more around customer and market issues. Specifically, what value does the vast amount of data generated by digital tools provide customers? How can companies earn money with it? The monetization of digital offers is taking center stage. However, there is a lot of catching up to be done. Only 23 percent of digitization initiatives had a noticeable effect on revenue last year, according to the results of our Global Pricing & Sales Study (GPSS) 2017. So why did the other 77 percent fail? They were too technology-focused and forgot to consider market requirements and customer value. It has never been easier to provide tailor-made, customer-focused offers; and the key is big data. Companies generate mounds of data every day – the task now is to use it to improve product offerings, sales, marketing, and customer services in order to generate more income.
- Professional pricing: Tactical and strategic
In 2018, tactical pricing means implementing price increases. After several stable years, many companies are seeing their costs increase for staffing, raw materials, and energy, etc. While these increases are not too extreme, they are still in the single-digit percentage range. Companies that choose not to pass these seemingly negligible rises on to their customers are making a mistake. It is precisely this swallowing of cost increases that is the number one profit killer. In order to avoid reductions in profit, companies have to learn to significantly increase their prices. Companies massively underestimate how important this task is, costing them billions each year. Price increases should therefore be implemented as part of a cross-functional project answerable to top management – pricing is a matter for the boardroom.
In 2018, strategic pricing means putting the incredible developments of digitalization, such as big data, etc. to use within companies and taking pricing to previously unseen levels of professionalism.
- Sales in the “Digital Age”: Now is the time to modernize
At many companies, sales will be the target of major overhaul in 2018. It will include several aspects, including direct sales. We believe that in the medium term almost every company will sell directly to individual segments. Customer segmentation will increase and customer care for major accounts will become more intensive. According to the GPSS 2017, nearly half of all companies believe value selling and the effectiveness of sales teams will become important topics this year. How can digitalization and big data be used more effectively to steer valuable sales? Another starting point is the omnichannel. For most, this remains unexplored territory. How can the various channels be combined, integrated, and managed? How can additional customer value be generated from this? None of this is new, but the circumstances for practical implementation have never been as good as they are today. And the pressure is also increasing. In 2017, we saw time and again that the companies that incorporated state-of-the-art tools into their sales process were more successful. In 2018, many others will follow their lead. The message is clear: don’t take half measures.
- Customer-centricity: The customer is key
Companies that stand out in terms of digitalization (“digital heroes”) differ from the rest in that they are very customer-centered. While most companies still use the conventional but outdated ABC segmentation approach, digital heroes use the power of big data, machine learning, and other developments to segment customers more precisely. This way, they can make offers that are tailored specifically to their needs. The tourism industry, for example, puts together customized travel packages comprised of different components (flight, hotel, transfer, extras, etc.). The packages bought by bargain hunters will be very different from those sold to loyal, luxury travelers. A considerable amount of work will be done on the topic of customer-centricity and customization in the near future. Not only will this affect all online businesses, it will also affect conventional offline business.
- Understand and measure the impact of pricing on shareholder value: Enterprise Value of Pricing
Stock markets are already at an all-time high and financial markets have enormous expectations. In 2018, it will be difficult to meet or surpass these exceptions simply by taking a “business as usual” approach, as costs and processes have largely been optimized already. It is widely known that successful pricing has a major impact on profit and company value, but it has been difficult to prove this to the financial markets. In developing the Enterprise Value of Pricing (EVP), we have found a formula that does just that. The EVP demonstrates that the financial markets’ growth forecasts can often be achieved through targeted pricing and monetization measures. In order to meet analysts’ high expectations, many managers will make this their starting point in 2018 – permanently changing the role of pricing for top management and financial markets alike.
Simon-Kucher & Partners, strategy & marketing consultants: Our focus is on TopLine Power®. Founded in 1985, Simon-Kucher & Partners has more than 30 years of experience providing strategy and marketing consulting and is regarded as the world’s leading pricing advisor. The firm has over 1,100 employees in 34 offices worldwide.